For the past 73 days, Ethereum’s supply has been steadily inflating. This marks the most extended inflationary period for Ether (ETH-USD) since the Merge in 2022. The culprit behind this inflationary trend appears to be the Dencun upgrade, which was implemented on March 13. This upgrade brought in nine Ethereum Improvement Proposals (EIPs), with EIP-4844 being a significant contributor.
Impact of the Dencun Upgrade
The Dencun upgrade introduced “blobs,” allowing transaction data to be stored separately and temporarily. This mechanism reduced the fees for block data on Ethereum layer-2 networks, such as Arbitrum and Optimism. Additionally, the upgrade included proto-danksharding, which improved data availability for block space on the Ethereum mainnet.
While these changes have reduced transaction costs on layer-2 networks, they have also led to a decrease in the total amount of ETH burned on the mainnet. Since the Dencun upgrade, over 112,000 ETH has been added to the overall supply, according to the Ethereum data dashboard ultrasound.money.
Ethereum’s Supply Dynamics
Despite the recent inflation, Ethereum’s total supply has decreased significantly since the Merge. More than 1.5 billion ETH has been burned since September 2022, while 1.36 billion ETH has been added. This results in an overall supply reduction of 345,000 ETH, equivalent to just over $1.1 billion at current prices.
Potential Impact on Ethereum’s Price
The recent inflationary trend in Ethereum’s supply could have several implications for its price. When the supply of an asset increases without a corresponding rise in demand, it typically leads to a decrease in price. The addition of over 112,000 ETH to the market since mid-April might exert downward pressure on Ethereum’s price in the short term.
However, it’s important to consider the broader context. Despite the recent increase in supply, Ethereum has burned more ETH than it has added since the Merge. This long-term deflationary trend could support Ethereum’s price by creating scarcity over time. Additionally, the Dencun upgrade’s enhancements, such as reduced transaction costs and improved data availability, could attract more users and developers to the network, potentially driving up demand for ETH.
Market sentiment also plays a key role. Investors might view the ongoing upgrades, such as the Pectra upgrade, and improvements as positive developments, increasing their confidence in Ethereum’s future prospects. If these upgrades lead to greater adoption and usage of the Ethereum network, the increased demand could offset the inflationary pressures, potentially stabilizing or even boosting Ethereum’s price.
At the time of writing, the price of Ethereum is sitting at $3,383.
Key Takeaway
While Ethereum’s supply has seen inflationary trends in recent months, the network has managed to maintain a net reduction in its overall supply since the transition to a proof-of-stake consensus mechanism. This highlights the complex dynamics of Ethereum’s supply and the impact of its ongoing upgrades.
